The effect of firm type on remedy after human
rights violations –
A comparison between international new ventures
and traditional MNEs in the natural resources
industry
MSc in Business Administration – International Management track
Student name: Sabrina Wittmann
Student number: 11089784
Date of Submission: 24.06.2016
Final Version
Supervisor: Dr. Michelle Westermann-Behaylo
Second reader: Drs. Erik Dirksen
2 Statement of Originality
This document is written by student Sabrina Wittmann who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
3 Table of Contents Abstract ... 5 1. Introduction ... 6 2. Literature Review ... 10 2.1 Human Rights ... 10
2.1.1 Business and Human Rights ... 10
2.1.2 Remedy and CSR... 11
2.2 International New Ventures ... 14
2.3 The Institutional Environment ... 22
2.3.1 Institution-based view... 22
2.3.2 Host country institutional environment ... 23
2.3.3 Home country institutional environment ... 25
2.4 Research gap ... 26
3. Theoretical Framework ... 28
4. Methodology ... 34
4.1 Research Design and data collection ... 34
4.2 Measures... 36 4.2.1 Dependent variable ... 36 4.2.2 Independent variable ... 37 4.2.3 Moderating variables ... 38 4.2.4 Control variables... 40 4.3 Sample ... 40 5. Results ... 42 6. Discussion ... 49
6.1 Summary of the findings and theoretical relevance ... 49
6.2 Managerial implications ... 54
6.3 Limitations and future research ... 55
7. Conclusion ... 58
4
Index of Tables and Figures
Figure 1: Conceptual Model ... 34
Table 1: Governance Indicators of the Home Country Institutions ... 38
Table 2: Governance Indicators of the Host Country Institutions ... 39
Table 3: Descriptives of in the analysis included variables ... 42
Table 4: Correlation Matrix ... 43
Table 5: Logistic Regression Analysis for Models 1 and 2 ... 45
Table 6: Logistic Regression Analysis for Models 3 and 4 ... 46
Table 7: Logistic Regression Analysis for Models 5, 6 and 7 ... 48
5 Abstract
Although the importance of corporate social behavior has been widely acknowledged, most previous research has investigated business and human rights studies separately from international business research. Therefore, this thesis aims at integrating the different streams of research to find out to what extent firm type affects provision of remedy and remedy type after human rights violations. Recognizing recent academic interests in firm characteristics such as size, age and time to internationalization, both traditional multinational enterprises (MNEs) and rather recently emerged international new ventures (INVs) are analyzed. Further, to answer calls for better consolidation of institution based theory, moderating effects of home and host countries’ institutional environments are tested. The sample used for this analysis comes from the ‘Corporations and Humans Rights Database’ and consists of 118 corporate abuse allegations (CAAs) of multinational enterprises from sixteen different home countries in 22 African host countries. Binary logistic regression analyses did not find support for a statistically significant relationship between firm type and remedy. There was further no evidence that home and host country institutional environments are moderating variables in this relationship. An unexpected finding that also stands in contrast to what previous studies have found is the negative and statistically significant relationship between firm turnover and remedy. This study contributes to existing research in business and human rights as well as international business by integrating the different theories. Further, as this study is of explanatory nature and based on quantitative data, calls for more empirical explanatory analyses are answered.
6 1. Introduction
Multinational enterprises (MNEs), i.e. companies that operate in more than one country (Dunning, 1974), have become increasingly powerful and relevant in the international business environment since the 1970s (Dunning, 2000). Due to globalization they have gained better access to various countries and especially natural resources in these countries (United Nations, 2009). As a consequence, economic growth has accelerated and new employment opportunities have been generated (Mosley & Uno, 2007). However, with MNE’s expanded operations across borders, they have also come to be increasingly involved in human rights violations (Murphy & Vives, 2013). Among the firms that have been accused of violating human rights are some of the biggest companies in the world, such as the oil and gas MNE Royal Dutch Shell (Ramasastry, 2015). These enterprises are, among other accusations, allegedly responsible for “exploiting children, discriminating against female workers, intimidating union leaders and displacing indigenous peoples from their lands” (Murphy & Vives, 2013, p. 781f.).
Therefore, the need to better integrate the fields of human rights and international business has been recognized by both theorists and practitioners (Hah & Freeman, 2014). The United Nations (UN) has called on state and non-state based actors to act responsibly and protect human rights, since firms that did not abide to these have often been accused of lacking corporate accountability as the result of ‘governance gaps’ (Bijlmakers, 2013). John Ruggie, the UN’s Special Representative of the Secretary-General for Business and Human Rights (UNHRC, 2011), defines these as arising from “a lack of sanctioning and reparation” (Coumans, 2010, p. 33), i.e. due to the absence of a regulatory framework for global corporate activities affecting human rights (Bijlmakers, 2013). As a reaction to this deficiency, the United Nations Human Rights Council (UNHRC) developed guiding
7 principles that ask both states and individual firms to avoid contributing to and tolerating human rights abuses (UNHRC, 2011).
However, as it has been acknowledged that preventing all violations is not feasible (Ruggie, 2008), there is a need for remedying corporate wrongdoings. Murphy and Vives (2013) consider remedy an important means in compensating victims for corporate human rights violations. This is accounted for by the UNHRC (2011) through the third pillar of the guiding principles which asks both state and non-state actors to develop effective remedy. Remedy after human rights violations is recognized as a form of corporate social responsible (CSR) behavior that firms often adopt to gain legitimization and acceptance (Palazzo & Richter, 2005). Many firms have acknowledged the importance of human rights for their operations, as “business can only flourish in societies in which human rights are respected, upheld and advanced” (Paul Polman, Unilever CEO, 2015). Ambatovy, a joint venture by multiple MNEs operating in the Madagascan mining industry, is an example of an enterprise that claims to strive for transparent and responsible operations (Ambatovy, 2014). Therefore, after sulfur dioxide was leaked from the mine in 2012, which has caused the death of four people and sickness of many others (MiningWatch Canada, 2012), the enterprise engaged in remedying this human rights violation. Besides medical examinations and treatments of the affected population, financial compensation was provided to people who were negatively affected by the leak and improved safety measures were installed (Ambatovy, 2014).
Even though the UN’s principles, such as provision of remedy, are universal, it is recognized that the implementation and measures may vary between firms (UNHRC, 2011), since these are not homogenous. As firms can differ in various characteristics such as size and age, they are also expected to pursue different approaches towards CSR (Jenkins (2006), Withisuphakorn & Jiraporn (2016)).
8 Previous research in international business has mainly focused on traditional MNEs that gradually evolve from domestically big and mature companies (Oviatt & McDougall, 2005). However international new ventures (INVs) are a phenomenon that stands in stark contrast to traditional internationalization theory, such as the Uppsala model by Johanson and Vahlne (1977). According to these models, firms are expected to show a gradually increasing commitment to international markets in order to minimize risks associated with operating in foreign countries (Sapienza, et al., 2006). However, a new firm type which has come to be known as international new venture (INV) contradicts this traditional internationalization process by skipping steps and quickly becoming international (Torres-Ortega, et al., 2015). Therefore, Oviatt and McDougall (2005) define an international new venture “as a business organization that, from inception, seeks to derive significant competitive advantage from the use of resources and the sale of outputs in multiple countries” (p. 31). As a result, INVs are often small and young enterprises (Oviatt & McDougall, 2005) that differ from traditional MNEs in many aspects.
Even though these firms are a relatively new phenomenon, they have become more common in the last few years. Therefore, there is an increased demand by researchers in the field of international business for better understanding this company type and its dynamics (Zander, et al., 2015). Even though it has been recognized that INVs are not limited to one industry (Oviatt & McDougall, 2005), most research on them has been done in knowledge intensive industries. Therefore, extending these studies into more fields will help to gain a better understanding of this firm type. As human rights violations have often been related to firms that operate in the natural resources industry (United Nations, 2000) and are active in less developed host countries (Belal & Momin, 2009), this thesis will focus on MNEs that were involved in a human rights violation in the natural resources industry in an African host country.
9 However, operating in foreign countries can be challenging for MNEs (Hah & Freeman, 2014) and human rights violations often take place in countries with a weak institutional environment (Belal & Momin, 2009). Therefore, it is recognized that the firm’s institutional environment affects its behavior (Peng, et al., 2008) and should thus be more closely researched in international business studies (Stahl, 2016). To answer this call, this thesis will investigate the effect the home and host country’s institutional environments have on the relationship between firm type and remedy after human rights violations.
Thus, this study aims at answering two research questions:
1) To what extent does firm type, i.e. whether the firm that committed the human rights violation is an international new venture or a traditional MNE, affect remedy?
2) What is the effect of the home and host country’s institutional environment on the relationship between firm type and remedy?
This thesis is structured as follows. First, an introduction to business and human rights with a special focus on remedy, INVs and the role of institutional environments of host and home countries will be provided. This literature review section will end with the discussion of the research gap which is followed by the theoretical framework in which four hypotheses will be developed. Subsequently, the research design, data collection and variables will be discussed in the methodology chapter. Next, results that were obtained from binary logistic regression analyses will be presented and are followed by a discussion of the findings and limitations. After providing suggestions for future research, the conclusion will summarize the most important findings of this study.
10 2. Literature Review
2.1 Human Rights
2.1.1 Business and Human Rights
Human rights are “legal or quasi-legal obligations enforced by the state or other international organizations” (Ramasastry, 2015, p. 240) and encompass “the most important and fundamental [...] moral rights that protect those freedoms that are essential for a dignified and self-determined human life” (Sen, 2004 cited in Murphy & Vives, 2013, p. 782). Even though an exact definition of the rights was only presented in the ‘Universal Declaration of Human Rights’ that the United Nations (UN) published in 1948 (Cmiel, 2004), the 1789 ‘Declaration of the Rights of Man and Citizen’ is already considered a milestone in the human rights field.
Human rights began to be seen in relation to business when corporate social responsibility (CSR) put labor and antidiscrimination rights on its agenda in the 1970s (Ramasastry, 2015). At that time, the business and human rights movement came into existence and companies were urged to “respect human rights wherever they operate, to do no harm and when harm is caused to provide a meaningful remedy to victims” (Ramasastry, 2015, p. 240). This principle reflects the contradictory relationship between human rights and MNEs, as this firm type is often seen as both supporting and endangering human rights. On the one hand through increased foreign direct investment (FDI) there exist more employment opportunities and economic growth has accelerated (Mosley & Uno, 2007). On the other hand, it has been asserted that MNEs’ “only social responsibility is to make profits for their shareholders” (Muchlinski, 2001, p. 35). As a result, many companies do not abide to human rights laws, but violate these through direct or indirect involvement (Murphy & Vives, 2013). Driven by multiple corporate abuses, the business and human rights movement has gained increased justification and support (Ramasastry, 2015).
11 In 1999 the UN initiated the ‘Global Compact’ that was directed at addressing corporate responsibility in relation to human rights (Ramasastry, 2015). The better and closer integration of business on the one and human rights on the other hand was deemed necessary, as it was recognized that economic actors needed defined rights to behave responsibly (United Nations, 2000). The aim of this initiative was to be able to integrate and benchmark individual firm’s behavior against international law (Petersmann, 2002). Despite criticism regarding the voluntary nature of the ‘Global Compact’, it paved the way for future initiatives such as the ‘United Nations Guiding Principles on Business and Human Rights’ that were presented in 2011 (Ramasastry, 2015) and which aim to achieve a “socially sustainable globalization” (UNHRC, 2011, p. 1). The Guiding Principles are built on three pillars, making a distinction between the state’s duty, non-state actors’ responsibility and actions to provide remedy after human rights abuses (Fasterling & Demuijnck, 2013). According to these principles, the states’ obligation is to “respect, protect and fulfill human rights and fundamental freedoms” (p. 1) and build a framework that encourages and supports businesses, located and operating within their territory or jurisdiction, to comply with human rights. Business enterprises are asked to “comply with all applicable laws and to respect human rights” (p. 1) through developing a policy commitment, carrying out human rights due diligence and providing appropriate remedy in case of delinquency (Fasterling & Demuijnck, 2013).
2.1.2 Remedy and CSR
Despite all endeavors, it is recognized that “the most concerted efforts cannot prevent all abuse” (Ruggie, 2008, p. 191) which makes it necessary to prepare for human rights violations and develop effective remedy. Thus, firms are expected to have “processes to enable the remediation of any adverse human rights impacts they cause or to which they contribute” (UNHRC, 2011, p. 16). Nolan and Taylor (2009) stress firms’ responsibility in
12 upholding human rights and therefore the importance of holding corporate actors accountable for their behavior. Therefore, respecting human rights and acting ethically correct has become more and more important for companies. Most firms show their efforts through corporate social responsibility (CSR) activities with the goal of “legitimizing [their] activities and increasing corporate acceptance” (Palazzo & Richter, 2005, p. 390). However, how do these findings on CSR translate into the business and human rights context? Ramasastry (2015) sees the two concepts of CSR and business and human rights as intertwined and, despite some differences, overlapping. While CSR is mostly emerging from voluntary commitments a firm is making, respecting human rights is related to corporate accountability and often subject to (quasi-)binding law (Nolan & Taylor, 2009). However, in many cases, CSR also includes human rights related components, and has thus become “an umbrella for both voluntary company initiatives […] and a newfound obligation to respect human rights” (Ramasastry, 2015, p. 251 f.). In addition, Wang and Bansal (2012) list some typical CSR activities which include, among others, using production methods with little environmental impact and caring for employees. Not respecting these goals and minimum standards in different areas of operations is often seen as directly related to human rights violation (Nolan & Taylor, 2009)
The UN accounts for the firms’ responsibility through the third pillar of the guiding principles (2011) which regulates remedy after human rights violations. According to the UNHRC, the grievance mechanisms should be legitimate, accessible, predictable, equitable, transparent, rights-compatible, a source of continuous learning and based on engagement and dialogue. These criteria should ensure that remedy is based on trust and equal, clear information and compatible with widely accepted human rights (UNHRC, 2011). Remedy can come in various forms and in different degrees of commitment. The UNHRC (2011) lists some possible forms of remedy which include “apologies, restitution, rehabilitation, financial
13 or non-financial compensation and punitive sanctions […] [and] prevention of harm through, for example, injunctions or guarantees of non-repetition” (p. 27). It is further recognized that the provision of remedy may be the result of judicial or non-judicial processes and can be executed by state-based and non state-based actors (UNHRC, 2011). However, for this thesis, only non-judicial remedy initiated by companies, i.e. non state-based actors, is relevant, as the behavior of companies after human rights violations is the main focus of analysis.
The UN’s principles “apply to all States and to all business enterprises, both transnational and others, regardless of their size, sector, location, ownership and structure” (UNHRC, 2011, p. 1). However, the chosen form of remedy may vary, depending on the firms’ characteristics as well as the nature and severity of the committed violation (UNHRC, 2011). One such difference can be identified in the maturity of firms. Withisuphakorn and Jiraporn (2016) argue that more mature firms have more stable cash flows and are more predictable when it comes to performance. Therefore, they are less likely dependent on establishing a reputation through investing in CSR, while younger firms may try to gain a positive reputation by engaging in socially responsible activities (Withisuphakorn & Jiraporn, 2016). In contrast, firms that have not been in existence for a very long time grow faster, have more unpredictable cash flows and have therefore fewer resources available to invest in CSR activities (Withisuphakorn & Jiraporn, 2016). However, firm maturity is not the only factor that may influence a firm’s commitment to engage in CSR and act responsibly. Jenkins (2006) investigates the relationship between firm size and firms’ CSR activities. He suggests that small companies can profit from ethical behavior as a potential source of competitive advantage. On the other hand, it is argued that small companies often lack formalized CSR schemes which could negatively affect their ethical behavior (Jenkins, 2006). Another characteristic that deserves more academic attention is firms’ time to internationalization, as this could both positively or negatively affect their remedy actions. While Sapienza et al.
14 (2006) stress the advantages of quickly internationalizing firms such as adaptability, Lepoutre and Heene (2006) identify resource constraints as potential risks to corporate ethical behavior. These dimensions of young firm age, small firm size and short time to internationalization are combined in a new firm type that has come to be known as ‘International New Venture’.
2.2 International New Ventures
Until recently, being a multinational enterprise was perceived as identical to being large and mature, since many MNEs were usually established firms that after maturing domestically ventured abroad (Oviatt & McDougall, 2005). These ‘traditional MNEs’ were able to exert high economic power and have gained importance and influence worldwide in the last 70 years (Oviatt & McDougall, 2005). However, due to technological change and an improved global infrastructure, it is no longer only large, established firms that are able to pursue business activities in different host countries, but many young and small enterprises are going international as well (Oviatt & McDougall, 2005). This phenomenon of international new ventures (INVs), that has only received attention since the late 1980s, is about companies “that are international from inception [and] raise capital, manufacture and sell products on several continents” (Oviatt & McDougall, 2005, p. 29). Typical of INVs is their global perspective and the development of capabilities that facilitate international establishment at or shortly after the firm’s coming into existence (Knight & Cavusgil, 2004). At first, INVs were predominantly from countries whose domestic market is small, but soon this type of firm became largely present all around the world (Knight & Cavusgil, 2004).
Very often, the terms ‘INV’ and ‘born global’ are used interchangeably (Crick, 2009), even though this can be misleading, as the scope of ‘born globals’ is usually narrower than that of INVs (Coviello, 2015). Other terms that are often used as synonyms for this type of
15 firm are ‘global start-up’, ‘instant international’ and ‘early or young internationalizing firm’ (Zhou, et al., 2010). Coviello (2015) argues that blurring the boundary line between different terms, in particular INVs and born globals, will lead to inaccuracies, as there exist various forms of INVs whose focus is not necessarily global but can be regionally restricted. However, for the scope of this thesis, making a distinction between the various types of this phenomenon is not necessary, as the exact dimension and degree of international activities is not relevant. Thus, following Crick (2009) and Fan and Phan (2007), ‘INV’, ‘born global’ and other related terms are here referring to the same phenomenon.
Among the first investigations of born globals was Rennie’s (1993) work on Australian manufacturing exporters. He describes and contrasts two types of exporting firms. First, he identifies well-established, traditional firms which on average start their exporting activities after 27 years and whose average amount of exports accounts for 20 percent of total sales. In contrast, the second type of company, born globals that are both younger and smaller than traditional MNEs, begin exporting two years after founding and have cross-border transactions that amount to 76 percent of total sales (Rennie, 1993). Rennie (1993) thus recognizes this new type of firm as relevant because it is successfully able to compete against established firms and operate “in a way that was impossible 20 or even ten years ago” (p. 47). Shortly after Rennie’s (1993) publication, McDougall et al. (1994) and Oviatt and McDougall (1994) presented their work on international new ventures which describes the same phenomenon of divergence from traditional internationalization theory.
Even though INVs are not homogenous, they have a similar internationalization process that stands in contrast to traditional international business theory (Oviatt & McDougall, 2005). Johanson and Vahlne (1977) describe the internationalization process as a gradual and increasing commitment to foreign markets that is defined by a “series of incremental decisions” (p. 23) and has its origin in behavioral theory and process logic (Sapienza, et al.,
16 2006). According to Sapienza et al. (2006), firms’ increasing international resource commitment is a response to pressures to internationalize. This internationalization is slowed down due to firms’ tendency to avoid uncertainty, while learning and knowledge accumulation from prior experience encourage new market entries and higher resource commitments (Sapienza, et al., 2006). In this process theory logic, moderating factors such as managers’ prior international experience or resources such as networks are usually not considered and survival of the firm is seen as the central goal (Sapienza, et al., 2006). As internationalizing too early is considered a risk to firm survival, the process theory suggests that both the type of commitment, from exporting to production, and the choice of host country, from low to high psychic distance, i.e. similar language and cultural background in home and host country to increasingly higher language barriers and fundamentally different cultures, changes with firm age and experience (Johanson & Vahlne, 1977).
However, INVs contradict this gradual model of internationalization, as they have been observed to skip stages and to quickly enter distant countries (Oviatt & McDougall, 2005). The motive behind these deviations from traditional internationalization theory is seen in pursuing growth opportunities (Sapienza, et al., 2006). Therefore, and in contrast to the assumptions of process theory, firms’ main goal is growth, which is made possible through internationalization (Sapienza, et al., 2006). The drivers of this deviation from traditional internationalization theory are mostly identified in a reduction of transaction costs due to market globalization and technological improvements (Knight & Cavusgil, 2004). First, due to more liberal global trading regimes (Fan & Phan, 2007) international business activities have been made possible for entrepreneurs (Karra, et al., 2008). Second, advances in communications and information technology have facilitated business activities across borders due to decreased transactions costs and increased speed (Knight & Cavusgil, 2004). Moreover, improvements and cost reductions in production, transportation and logistics have
17 contributed to a huge increase in international trade (Knight & Cavusgil, 2004). In addition, Fan and Phan (2007) see less strict trading rules as another factor that has facilitated early internationalization.
There is no one definition on the characteristics that are necessary to label a firm as an INV or born global, but different definitions exist (Crick, 2009). Torres-Ortega et al. (2015) identify characteristics that apply to born globals which are among others “the speed of internationalization from inception […] and the firm size” (p. 109). Usually, born globals become international within three years after founding and are mostly small- to medium-sized firms (Torres-Ortega, et al., 2015). This observed time period to foreign market entry is in line with Knight and Cavusgil (2004) who witnessed internationalization in INVs often within three years or less after the firm’s domestic establishment. Other definitions assume that the newness of this firm type is reflected if the firm has not existed for longer than six years (Coviello, 2015), while in some studies companies are labeled ‘INVs’ if they have internationalized within the first ten years (Khavul, et al., 2010). Even though INVs share many similarities, they are not homogenous in every aspect. Therefore, Zahra (2005) argues that different INVs will possess different competitive advantages. However, they are mostly similar in three aspects that differ from traditional MNEs: firm size, firm age and time to internationalization (Torres-Ortega, et al., 2015). These differences will likely affect INV’s ethical and social behavior in general and remedy after human rights violations in particular.
First, INVs are mostly small- to medium-sized firms (Torres-Ortega, et al., 2015). Thus, they differ from bigger companies in various characteristics (Lepoutre & Heene, 2006) and are “not little big companies” (Tilley, 2000, p. 33). There exist fewer theories and insights on small companies, since they are very heterogeneous and much research has focused on large enterprises (Lepoutre & Heene, 2006). However, small size allows firms to be more flexible and to quickly respond to changes in their environment which can lead to superior innovation
18 processes (Rothwell & Dodgson, 1991). In addition, internal communication is often easier and more efficient and management styles tend to be more interactive (Rothwell & Dodgson, 1991). Jenkins (2006) therefore argues that due to more personal decision making, responsibility schemes are less likely to be formalized in small and medium sized companies. Moreover, this higher degree of autonomy might lead to an allocation of company resources without including any directed at CSR activities (Jenkins, 2006).
On the other hand, smaller firms may be less able to spread risk, since their portfolio is often less diverse than that of bigger companies (Rothwell & Dodgson, 1991). Moreover, starting business operations in a foreign market can be more difficult, because their external networks are usually smaller (Rothwell & Dodgson, 1991). As a result, large enterprises are in a more advantageous position to develop and sustain a competitive advantage, as they can also make use of economies of scale and an increased bargaining power (Fiegenbaum & Karnani, 1991). However, Jenkins (2006) identifies CSR activities as a potential source of competitive advantage from which small companies can benefit. Therefore, as CSR and human rights are closely related (Ramasastry, 2015), providing remedy after human rights violations could positively affect a small firm’s performance and perception.
Second, INVs are mostly rather young companies that have not been in existence for a long time and have not existed before 1990 (Zhou, et al., 2010). Therefore, it is assumed that INVs are in an advantageous position vis-à-vis older companies in regard to adaption and learning, as they do not have to overcome inertia in order to develop (Zahra, 2005). This argument is in line with Knight and Cavusgil (2004) who see traditional MNE’s bureaucratization, a form of inertia, as an obstacle to innovativeness and contrast it to the flexibility and openness to innovation of younger, smaller firms. In addition, Zhou et al. (2010) identify the rapid recognition of and response to international opportunities as INVs’ main advantage, as these result in “successful expansion, growth, and other performance
19 advantages” (p. 883). However, in accordance with Zahra (2005) and Knight and Cavusgil (2004), they acknowledge that the reason for INVs’ fast responses to opportunities lie in reduced complexity and the absence of set routines. Autio et al. (2000) take these analyses a step further by introducing the concept of ‘learning advantages of newness’. They argue that younger firms’ capabilities can be more easily modified, as managers are more flexible and less prone to being locked in a dominant logic. Therefore, as the concept of and emphasis on integrating business and human rights is rather recent (Ramasastry, 2015), younger firms that do not suffer from high complexity and fixed routines (Knight & Cavusgil, 2004) may be better able to adapt and quickly implement new measures to compensate for committed human rights violations.
On the other hand, since INVs have not been in existence for a long time they often suffer from a liability of newness. Therefore, they are likely to lag behind on operational efficiency, in particular regarding operating routines, internal communications and building relationships with stakeholders (Wang & Bansal, 2012). As a consequence, their risk of failure may be greater than that of established firms that have more stable structures and have developed efficient routines (Freeman, et al., 1983). Withisuphakorn and Jiraporn (2016) link this lack of efficiency and financial stability in younger companies to an inability to invest in CSR due to resource constraints. Thus, their study shows a positive relationship between firm age and ethical behavior which is also found by Rabbiosi and Santangelo (2013) due to younger firms’ lack of capabilities. In addition, younger firms are often more dependent on external cooperation and strive for legitimacy and recognition which older companies already possess (Freeman, et al., 1983). While Withisuphakorn and Jiraporn (2016) also consider a possible negative relationship between firm age and CSR activities, their study does not find support for this hypothesis. This is in line with Wang and Bansal’s (2012) findings which suggest that non-established companies’ actions receive less public attention.
20 Third, early internationalization is the characteristic that most distinguishes INVs from other types of companies and can be both a chance and a risk to the individual enterprise. Internationalizing early is often seen as a “catalyst for growth” (Sapienza, et al., 2006, p. 914), as this requires dynamic capabilities that will also prove helpful later in the firms’ life. Sapienza et al. (2006) argue that being exposed to various environments and uncertainty in the form of new market conditions right from the beginning will lead to higher adaptability, better handling of uncertainty and internalization of continual change. This is due to ‘imprinting’ which mainly occurs during the founding years, but will likely have a long-lasting effect on a firm’s capabilities, its development and its openness to change (Sapienza, et al., 2006). Autio et al. (2000) also argue that companies which operate internationally from beginning have a different self-image than companies that had its initial focus on the domestic market (Autio, et al., 2000). In particular, INVs are less likely to see operating in foreign markets as costly or risky, but are usually more flexible and adaptive companies (Autio, et al., 2000). According to Ayton-Shenker (2003), this flexibility and adaptability is also inherent in human rights, as they are applied in diverse environments and different situations. McWilliams and Siegel (2001) also see flexibility as crucial and therefore recognize that more dynamic firms are in a better position to quickly respond to ethical issues than companies that do not possess these capabilities.
In contrast, other researchers argue that early internationalization negatively affects capability development and organizational learning (Sapienza, et al., 2006). Moreover, internationalization requires investments in various capabilities which reduce a firm’s available resources for other business activities (Sapienza, et al., 2006). Therefore, Sapienza et al. (2006) argue that, even though growth is accelerated, firm’s survival may be threatened in the short term. As a result, Lepoutre and Heene (2006) expect resource constrained firms to apply more rigorous decision-making in order to not waste assets on non-value adding
21 projects. This however could negatively impact firm’s socially responsible behavior (Lepoutre & Heene, 2006). Moreover, firms that internationalize shortly after coming into existence often lack positional advantages such as a good reputation or trust which older, more established companies have available when starting international operations (Sapienza, et al., 2006). Palazzo and Richter (2005) recognize that most firms demonstrate ethical behavior through CSR with the goal of “legitimizing [their] activities and increasing corporate acceptance” (p. 390). Therefore, by respecting human rights, which are an integral part of CSR (Ramasastry, 2015), INVs could gain acceptance and legitimization. This is even more important, as they are likely to suffer from ‘liabilities of foreignness’, i.e. disadvantages arising from unfamiliarity with the host country’s market and coordination across countries (Zaheer, 1995). These disadvantages are expected to “result from spatial distance, firm-specific lack of knowledge about local markets, additional costs that can come from doing business in host country markets and even costs imposed by a home country government” (Bals, et al., 2013, p. 400). While all companies that venture abroad experience some sort of liability of foreignness, Arenius et al. (2006) argue that INVs are more affected, as they suffer from a liability of newness at the same time. As INVs are already more resource constrained than bigger and more established firms (Zander, et al., 2015), increased costs resulting from the double burden of liability of foreignness and newness are likely to worsen their situation. According to Withisuphakorn and Jiraporn (2016) a less stable financial situation will therefore lead to decreased CSR engagement.
In summary, some researchers suggest that INV’s small firm size, young firm age and quick internationalization will have a positive effect on corporate social behavior. The main reasons for this are identified in the firm type’s flexibility, learning advantage, efficiency in management and search for public recognition. On the other hand, some previous studies have identified the contrary effect. Therefore, INV’s characteristics are could lead to a
22 decreased likelihood for ethical behavior due to lack of competitive advantage, lack of experience and resource constraints.
2.3 The Institutional Environment 2.3.1 Institution based view
Another factor that plays an import role in the field of human rights and business is the home and host country’s institutional environment, as it influences the strategy of a firm (Meyer, et al., 2009). According to Coumans (2010), effective impunity arises if host country governments do not prosecute MNEs for human right abuses and if home countries do not effectively regulate for such either. The UNHRC’s guiding principles (2011) account for this in assigning a duty to protect human rights and penalize abuses to states.
Historically, two main views of what determines firm strategy have dominated in international business research: the industry based view and the resource based view (Peng, et al., 2008). However, Peng et al. (2008) criticize both views due to their lack of acknowledging the importance of institutions for firms’ decision-making. North (1990) defines institutions as the “rules of the game in a society [that] structure incentives in human exchange, whether political, social, or economic” (p. 3). He differentiates between formal rules, such as laws, and informal rules, such as norms. This thesis however, will follow the approach of Dikova and van Witteloostuijn (2007) by only focusing on formal institutions, as they were found to be more relevant in a business context than informal institutions.
Meyer et al. (2009) identify two different kinds of institutions which can be relevant for both the host and home country of firms. ‘Strong’ institutions are institutions that “support the voluntary exchange underpinning an effective market mechanism” (p. 63) and are prevalent in developed economies, even though they are often barely visible. In contrast, a ‘weak’ institutional environment is associated with effective market failure or markets being
23 undermined, such as in the case of corruption (Meyer, et al., 2009). Thus, the transaction costs in such markets are often higher which is also due to information asymmetries and results in higher risks of doing business (Meyer, et al., 2009).
Peng et al. (2008) argue that seeing institutions only as background conditions is no longer sufficient and thus introduce the institution based view. This change of perception is in line with Cantwell et al. (2010) who observe that the institutional environment MNEs are faced with has gained increased importance over time due to globalization and a new kind of economy. This is especially true for MNEs, as they have operations in various countries and are thus faced with more diverse institutions than firms that only operate in one environment (Cantwell, et al., 2010). INVs, as a special type of MNE which has emerged due to changes in the economy (Oviatt & McDougall, 1994), should therefore be analyzed with respect to their institutional environments as well.
According to Peng et al. (2008) this is even more important when the company has operations in emerging economies, since there the institutional environment actively shapes a firm’s behavior and its strategic decision-making. Operating in less developed countries is furthermore often linked to an increased risk for human rights violations (Belal & Momin, 2009). This is due to the fact that companies are often faced with conflicting expectations by their home and host countries, as relevant institutions and stakeholders are different (Hah & Freeman, 2014).
2.3.2 Host country institutional environment
Due to INVs’ smaller size, younger age and quick internationalization, Zahra (2005) stresses the importance of considering the role of the host country’s institutional environment in the study of INVs. If the host country’s institutional environment is ignored, the difficulty of truly understanding a foreign cultural and institutional environment in a short period of
24 time could be understated (Zahra, 2005). Khavul et al. (2010) refer to this as achieving ‘organizational entrainment’ by adapting internal activities to the external, foreign environment. Therefore, operating in host countries with other types of institutional contexts can be challenging for companies. It is not always obvious to multinationals how to act in foreign environments, as there exist cultural differences as well as differences related to what is seen as acceptable and appropriate corporate behavior in comparison to their home country (Hah & Freeman, 2014). Ethical standards may differ and firms may be faced with institutional differences as well (Hah & Freeman, 2014) which requires them to learn to cope with these differences and challenging situations. According to Sapienza, et al. (2006), INVs may be in an advantageous position vis-à-vis traditional MNEs when it comes to learning and adapting to new situations. This argument is also supported by Autio et al. (2000) and McWilliams and Siegel (2001). However, Rothwell and Dodgson (1991) suggest that INVs could find it more difficult to cope with different institutional environments due to their lack of external networks.
Further, it has often been observed that firms co-evolve with the institutional environment they operate in (Cantwell, et al., 2010). In particular, institutional isomorphism and institutional logic have been the two dominantly applied theories to study MNEs and their behavior in host countries (Hah & Freeman, 2014). Isomorphic pressures, which can be of normative, mimetic or coercive nature (Cantwell, et al., 2010), are mainly exercised from host country actors and will likely be followed by foreign companies in order to reach external legitimacy in the foreign environment (Hah & Freeman, 2014). Since younger firms, such as INVs, often strive for external recognition (Freeman, et al., 1983), they may be more responsive to isomorphic pressures.
25 2.3.3 Home country institutional environment
In addition to the host country, a firm’s home country significantly influences its actions and strategies as well as opportunities for growth (Meyer, et al., 2009). Wan and Hoskisson (2003) differentiate between more and less munificent home country institutional environments which influence firms’ ability to engage in business transactions, innovate and compete internationally. Being accustomed to fierce competition and sophisticated consumer demands in their home countries, while also relying on protection of intellectual property, Wan and Hoskisson (2003) argue that companies from stronger institutional environments are more innovative and often have a competitive advantage. The UN’s guiding principles (2011) recognize the home country’s role by also assigning a responsibility to respect and protect human rights to the state in which the company is based.
Stronger home country institutions allow companies to acquire and make efficient use of their developed and superior skills when starting business operations in other countries (Wan & Hoskisson, 2003). However, McDougall et al. (1994) consider firm’s inertia, emerging from operating too long in only the home country environment, a possible impediment to foreign market success. INVs are therefore less prone to experience this inertia, as they operate in various environments from inception (McDougall, et al., 1994). Despite their quick internationalization, Rialp et al. (2005) found that INVs show a greater connectivity and adaptability in their home country environment than in other markets.
In contrast, firms coming from weak institutional environments are less able to make efficient use of their capabilities in foreign markets and are less successful when faced with foreign competitors (Wan & Hoskisson, 2003). Therefore, they are more resource constrained than firms from stronger home country institutional environments. Withisuphakorn and Jiraporn (2016) connect this lack of resources to decreased CSR engagement.
26 2.4 Research gap
Firms have been assigned an increased responsibility for their actions and are more and more urged to behave ethically correct (Nolan & Taylor, 2009). This demand is also reflected in the academic literature which has experienced increased attention to research in the closely related (Ramasastry, 2015) fields of CSR and human rights (c.f. Withisuphakorn & Jiraporn (2016), Giuliani & Macchi (2014)). However, only in 2011 has the UN released its Guiding Principles that assign a responsibility to respect and protect human rights to both firms and states (UNHRC, 2011). In these principles accountability through provision of remedy after human rights violations was introduced as an important pillar in the business and human rights debate. However, even though the relevance of remedy is widely acknowledged (c.f. Ruggie (2008), Nolan & Taylor (2009)), this concept has still barely been discussed and investigated in academic research. A lack of integration of the fields of business and human rights and international business research (Giuliani & Macchi, 2014) could be one reason why research on this issue is lagging behind. As related topics such as CSR have rather been the focus in international management, insights on MNEs and their human rights approaches are mostly coming from other fields such as business ethics and international law (Giuliani & Macchi, 2014). Therefore, this thesis aims at achieving a better integration of the different theories and streams of research. It further adds to previous business and human rights studies through its research design. Both explanatory studies and empirical research are needed and demanded to achieve a better understanding and new insights in this academic field (Giuliani & Macchi (2014), Stahl (2016)).
In addition, so far little is known about differences between various firm types and their approaches towards addressing and remedying human rights violations. A firm type that has received much scholarly attention is international new ventures, which distinguish themselves from traditional MNEs by their smaller firm size, younger firm age and faster
27 internationalization (Torres-Ortega, et al., 2015). Jenkins (2006) suggests that small firm size could have a positive or negative effect on CSR. He argues that the outcome depends on managerial flexibility and if the company is able to generate competitive advantage by engaging in CSR. Withisuphakorn and Jiraporn (2016) investigated the effect of firm maturity on CSR activities and found a negative relationship due to resource constraints in younger firms. Thus, while firm size and firm age have been related to CSR and firm responsibility, no connection has been made between INVs and remedy actions after corporate human rights abuses.
Therefore, the first research question is:
To what extent does firm type, i.e. whether the firm that committed the human rights violation is an international new venture or a traditional MNE, affect remedy?
Further, this thesis strives to establish a better understanding of the role of the companies’ institutional environments by including the home and host country institutional environment of the INV as a moderating variable. Stahl (2016) has demanded a better integration of institution based theory in international business and human rights research. Since the relevance of both home and host country institutions is also acknowledged by the UN (UNHRC, 2011), the second research question is:
What is the effect of the home and host country’s institutional environment on the relationship between firm type and remedy?
In the following chapters, hypotheses that aim at answering these research questions will be developed and tested.
28 3. Theoretical Framework
This thesis aims at bringing more light into the relationship between different firm types, more specifically INVs and traditional MNEs, and their approach towards remedy after directly or indirectly being involved in a human rights violation. In addition, the effect of the institutional environment of both the home and host country on this relationship will be explored.
There are three main arguments that suggest that INVs have a different approach to remedy than other types of companies.
First, INVs are usually smaller than traditional MNEs. Thus, they are likely to differ in financial turnover, market share, numbers of employees and other dimensions (Lepoutre & Heene, 2006). As a result, INVs are usually more resource-constrained than larger and more established companies (Lepoutre & Heene, 2006). This lack of slack resources in turn calls for more rigorous decision-making where and how to allocate the available assets (Zander, et al., 2015). Lepoutre and Heene (2006) argue that due to limited financial resources, smaller companies often see investments that are not directly adding value to their core business as a potential source of competitive disadvantage. Thus, smaller enterprises are more likely to focus on building and exploiting their main business activities and are therefore less concerned about taking into account side effects of their operations and establishing remedies for those. In addition, they are often less known than big, established companies and are less carefully watched by the public (Wang & Bansal, 2012). As a result, they may be more successful with hiding negative incidents and may not be caught when committing human rights violations. This reduces the necessity for having in place an effective remedy system, as smaller companies such as most INVs do not expect to be as closely observed as large MNEs and their wrongdoings are therefore less likely to be uncovered. Moreover, their
29 handling of the situation and their approach to remedy are less likely to be publicly watched and reported on. Thus, the INV’s motivation for providing remedy after human rights violations will likely be smaller than that of traditional MNEs. Furthermore, Jenkins (2006) argues that due to their smaller size, these companies are less likely to have formalized CSR activities. As decision-making in small companies is usually more personal and autonomous (Jenkins, 2006), it is less likely that many company resources will be directed towards such causes. Therefore, due to a lack of structure and formalization, small companies are less well-prepared to provide effective remedy after human rights violations. Overall, smaller firm size will likely reduce the probability that firms will provide remedy after human rights violations.
Second, INVs are rather young companies that were founded not earlier than 1990 (Zhou, et al., 2010). Withisuphakorn and Jiraporn (2016) suggest two contradicting effects of firm maturity on corporate social responsibility (CSR) activities. On the one hand they argue that older firms are more stable and certain about their future performance and cash flows, while younger companies are subject to higher growth and less predictable cash flows. As a result, they hypothesize that younger enterprises are financially less able to invest in CSR activities than more mature firms. Thus, they are more resource-constrained than older companies. Wang and Bansal’s (2012) findings support this hypothesis, as they find evidence that CSR activities of new ventures are negatively related to their financial performance. These findings are also in line with Rabbiosi and Santangelo (2013) who argue that there exists a positive relationship between firm age and CSR activities. On the other hand, more mature firms have already established themselves on the market and have gained a solid reputation, while new ventures use CSR engagement to gain recognition and justification (Withisuphakorn & Jiraporn, 2016). Therefore, they may be more motivated to behave ethically correct in order to gain competitive advantage. Withisuphakorn and Jiraporn’s (2016) results lend support to the former explanation, as more mature firms were observed to
30 spend more on CSR activities. Therefore, new companies are less likely to profit from, and thus invest in, CSR.
Third, INVs internationalize early, usually within three years after founding (Torres-Ortega, et al., 2015; Knight & Cavusgil, 2004). Even though this quick internationalization is associated with high growth opportunities for the individual firm, there also exist many risks arising from a liability of foreignness (Sapienza, et al., 2006) paired with a liability of newness (Arenius, et al., 2006). In particular, INVs face higher risk and uncertainty due to imperfect information when entering new business areas or markets (Zander, et al., 2015). Even though liabilities of foreignness do not only apply to new ventures, but also traditional MNEs that internationalize later, INVs often lack slack resources or alternative options to counter these disadvantages (Zander, et al., 2015). Therefore, due to resource constraints they are less able to invest in non value adding projects (Sapienza, et al., 2006) and thus less likely to provide remedy after human rights violations. Moreover, INVs often focus on growth and are therefore investing many resources in developing capabilities in the foreign market (Sapienza, et al., 2006). As a result, they are likely to be less concerned with preparing for the case of a human rights violation, e.g. in the form of establishing an effective remedy systems. Instead, most of their resources will be directed towards achieving growth and building capabilities which will result in a lack of resources that can be used for other purposes, such as CSR or remedy. The lack of motivation that has already been related to smaller firm size and younger firm age can thus also be observed with quickly internationalizing firms.
Taking into account the implications of smaller firm size, younger firm age and early internationalization in INVs on remedy will lead to the first hypothesis:
H1a: Human rights violations committed by INVs are less likely to be remedied by the firm than violations committed by traditional MNEs.
31 However, if remedy is provided, it can be expected that INVs offer different remedies than traditional MNEs. This is due to two reasons: INVs are more resource constrained (Lepoutre & Heene, 2006) and less prepared for these kind of situations (Sapienza, et al., 2006). Therefore, we distinguish between more and less committed forms of remedy as defined in the Guiding Principles (UNHRC, 2011). In particular this means that apologies, guarantees of non-repetition and non-financial forms of compensation can be classified as less committed, since no financial commitment is required. In contrast, financial compensation, rehabilitation and restitution are classified as more committed, since the company needs to allocate resources to remedy their wrongdoings. Since the former requires fewer resources and less preparation than the latter form of remedy, the next hypothesis states that:
H1b: If INVs provide remedy, they will more likely provide less-committed remedy than remedy that requires higher degrees of commitment.
Coumans (2010) recognizes the importance of host country governments to hold MNEs responsible for their actions, as effective impunity arises if MNEs are not officially prosecuted after committing human rights abuses. In the UNHRC’s guiding principles (2011) this idea is demonstrated by assigning a duty to protect human rights and penalize abuses by firms to states.
The host country government is critical in the process of providing remedy after human rights violations in two ways. First, it may be directly responsible to provide remedy through state-initiated remedy attempts which can be judicial or non-judicial (UNHRC, 2011). Second, it can pressure companies into providing remedy after their violation of human rights and ensure that affected parties get access to remedy by creating public understanding and
32 awareness (UNHRC, 2011). For the scope of this thesis, however only the latter one is of interest because this thesis aims at investigating corporate reactions.
The Guiding Principles recognize that “states should facilitate access to effective non-state-based grievance mechanisms” (UNHRC, 2011, p. 31), e.g. those provided by companies. However, the effectiveness and assertiveness of the host country’s government in the remedy process depends on its power and strength. This means that important characteristics are “their impartiality, integrity and ability to accord due process” (UNHRC, 2011, p. 28) and their willingness to act as a facilitator, responsible for raising awareness (UNHRC, 2011).
However, if states are weak or even failing they are not able to or less likely to provide this framework for ensuring access to remedy. As a consequence, they lack power and may not be able to install and maintain laws and regulations that govern the handling of remedy after human rights violations. In addition, Cantwell et al. (2010) argue that very often MNEs are “as powerful as the local institutional actors” (p. 572) which further reduces the assertiveness of a weak host country’s rules.
Therefore the next hypotheses states that:
H2: A weak host country institutional environment decreases the likelihood that INVs provide remedy after committing a human rights violation.
In addition to the relevance of the host country, the home country of the firm is also expected to play a role in the remedy process. The UNHRC (2011) recognizes that the home country institutions are especially relevant where host countries are conflict-affected and therefore not able to adequately protect human rights and remedy violations. In these situations, home country institutional actors “have roles to play in assisting both those
33 corporations and host states to ensure that businesses are not involved with human rights abuse” (UNHRC, 2011, p. 9). In addition, due to isomorphic pressures (Cantwell, et al., 2010), firms are expected to adapt to their home country institutional environment. Therefore, if home countries are rather weak and not able to exercise enough power to establish and enforce ethical behavior, companies from these environments are less likely to act ethically and responsibly in foreign, i.e. host country, environments. Even though McDougall et al. (1994) acknowledge INVs’ high flexibility and adaptability which could be beneficial in adapting to new institutional environments, Rialp et al. (2005) could still find an incrased relatedness to the home country environment which had a lasting impact on firms. Moreover, as companies from strong home country institutional environments are usually more successful (Wan & Hoskisson, 2003), they are less resource constrained than competitors from weak home country institutional environments. As Withisuphakorn and Jiraporn (2016) have identified a lack of financial resources as a possible impediment to CSR activities, companies coming from weak institutional environments are less likely to provide remedy after human rights violations.
Consequently, we expect:
H3: A weak home country institutional environment decreases the likelihood that INVs provide remedy after committing a human rights violation.
The above developed three hypotheses form the conceptual model which is visually summarized in figure 1. These hypotheses will be tested in the next part of this thesis.
34 Figure 1: Conceptual Model
4. Methodology
4.1 Research Design and data collection
The aim of this thesis is to examine the effect of firm type on firms’ remedy actions after human rights violations, and the impact of the institutional context on this relationship. Firm type refers to whether the firm is an international new venture (INV) or a ‘traditional MNE’, while the moderators take into account the strength of the institutional environment of both the home and host country.
The unit of analysis is a ‘company abuse allegation (CAA)’ and the analysis is based on a cross-sectional study which gives a “snapshot […] at a particular time” (Saunders, et al., 2007, p. 148). As this thesis focuses on the relationship between two variables and the effect of the independent on the dependent is of interest, an explanatory study is adopted. In contrast to exploratory studies, which are more flexible and have a broader focus (Saunders, et al., 2007), the scope of explanatory research is narrower and only the selected variables of interest are considered. Thus, influence factors beyond the initially defined ones are not taken into account and there is the risk of not including a relevant variable. However, in the
35 research field of human rights and business as well as in the INV literature, many exploratory studies have already been conducted (cf. Fasterling & Demuijnck (2013); Knight & Cavusgil (2004)) and there is increased demand for empirical explanatory analyses (Giuliani & Macchi, 2014). Therefore, the method adopted in this thesis is answering the call for empirical contributions and is a promising complement to existing research. Quantitative data is thus used to test the hypotheses and the analyses are run using the statistical software SPSS.
For this study, mostly secondary data, i.e. “data that have already been collected for some other purpose” (Saunders, et al., 2007, p. 246), is used. There are some potential disadvantages of using secondary data, such as the different purpose the data was initially collected for and thus inadequate aggregation, as well as a potentially insufficient data quality due to a lack of control during the collection process (Saunders, et al., 2007). However, for this study, these drawbacks are not applicable or are outweighed by the method’s benefits. Among these advantages are the savings in time and money in obtaining the data and its permanence (Saunders, et al., 2007). In addition, as data on human rights violations and remedy is retrieved from the ‘Corporations and Human Rights Database’ (CHRD) whose aim is to study claims and reactions to claims of human rights abuses (Olsen & Westermann-Behaylo, 2016) it is compatible with this thesis’ research goal. However, as this database is solely based on allegations collected by the Business and Human Rights Resource Centre (Olsen & Westermann-Behaylo, 2016), which only encompasses reported corporate human rights violations, it is likely that not all actually committed abuses are included, as many remain unregistered (de Felice, 2015).
Information on the type of company and the control variables is retrieved from Bureau van Dijk’s Orbis database which contains data from different sources on more than 50 million firms from all over the world (di Giovanni & Levchenko, 2012). It is a widely-used source on
36 inter-temporal firm-level data and is one of the most comprehensive databases (de Jong & van Houten, 2014). Data that could not be found in the Orbis database was further searched for in other sources such as companies’ websites or statistical databases such as statista.com.
4.2 Measures
4.2.1 Dependent variable
The dependent variable in this thesis is corporate remedy action after human rights violations, i.e. non-judicial remedy provided by the company involved in the violation. The UN’s Guiding Principles (2011) differentiate between judicial and non-judicial forms of remedy. As this thesis seeks to investigate firms’ reactions to human rights violations, judicial remedy is not of interest, since this state-based mechanism goes beyond the scope of the individual firm’s influence in a host or home country. The focus on non-judicial forms of remedy is in line with Nolan and Taylor (2009) who also stress the responsibility of the individual firm in providing remedy. However, even non-juidical modes of remedy can be initiated “by a business enterprise alone or with stakeholders, by an industry association or a multi-stakeholder group” (UNHRC, 2011, p. 31). This is also reflected in the CHRD which names international organizations, state organizations, industry associations, companies, victims, violation reporters and community groups as possible initiators of non-judicial remedy attempts. However, as corporate social responsibility is only directly shown when remedy attempts are made by the company that was involved in the human rights violation, only these cases are considered. Companies can either not provide any remedy or choose between various forms of remedy (UNHRC, 2011). Whether remedy actions were initiated is tested by computing a binary variable where 1 stands for ‘non-judicial remedy was provided by the company’ and 0 stands for ‘no non-judicial remedy was provided by the company’.
37 In order to test hypothesis 1b, the companies that were assigned a ‘1’ are then further analyzed for the kind of remedy actions. Following the classification of remedy used both in the UN’s Guiding Principles (2011) and in the CHRD, the defined categories are ‘apology’, ‘guarantee of non-repetition’, ‘non-financial compensation’, financial compensation’, ‘rehabilitation’ and ‘restitution’. A further CHRD category of ‘Other’ was looked at again in detail and on the basis of the new findings categorized into one of the defined categories. As discussed in the previous sections, the former three are summarized as ‘less committed’ (coded as 0), while the latter three are classified as ‘more committed’ (coded as 1).
4.2.2 Independent variable
The independent variable is the company type, where firms are classified as either international new ventures (INVs) or traditional MNEs. For this operationalization three criteria are considered: time to internationalization, scope of internationalization and founding year.
First, following Torres-Ortega et al. (2015) and Knight and Cavusgil (2004) companies are defined as INVs if they become international within three years after founding. Even though there are varying definitions of time to internationalization (cf. Coviello (2015); Khavul, et al. (2010)), internationalization within three years is a well-recognized cutoff for distinguishing INVs from traditional MNEs (Zhou, et al., 2010). Second, regarding the definition of ‘international’ very often the focus has been on ‘international sales’ (c.f. Khavul et al. (2010); Zhou et al. (2010)). In this thesis however, the companies mostly sell commodities, thus making exports as a measurement of internationalization meaningless. Therefore, FDI is used to measure the scope of foreign operations. The requirement of quick internationalization is met when the company opened a foreign subsidiary within the first three years after its founding. Third, since INVs are a rather recent phenomenon (Oviatt &
